The extent to which workers adjust to labor market disruptions in light of increasing pressure from trade and automation commands widespread concern. However, surprisingly little is known about efforts that deliberately target the adjustment process. This project studies 20 years of worker-level earnings and re-employment responses to Trade Adjustment Assistance (TAA)—the United States’ largest and longest standing public incentive program for retraining. I estimate causal effects from the quasi-random assignment of TAA cases to investigators of varying approval leniencies. Using employer-employee matched Census data on 300,000 displaced workers, I find large initial returns to TAA. Ten years out, TAA-trained workers have $50,000 higher cumulative earnings, driven by both higher incomes and greater labor force participation. Yet annual returns fully depreciate after ten years. TAA appears to have no effect on formal education, and decaying returns are restricted to states with low training durations. Combined with evidence that effects are driven by training rather than transfer components of TAA, this suggests that the program augments transient rather than permanent human capital. Returns are further concentrated in the most disrupted regions, where workers are more likely to switch industries and move to labor markets with better opportunities in response to training—consistent with adjustment frictions.

India has a multitude of environmental regulations but a history of poor enforcement. Between 1996 and 2004, India’s Supreme Court required 17 cities to enact Action Plans to reduce air pollution through a variety of command-and-control (CAC) environmental regulations. We compare the impact of these regulations with the impact of changes in coal prices on establishment-level pollution abatement, coal consumption, and productivity growth. While both CAC regulations and higher coal prices resulted in improved air quality, they operated through different channels. CAC regulations primarily increased the share of large establishments investing in pollution control equipment, and reduced the entry of new establishments. In contrast, higher coal prices reduced the intensive margin of coal use within all establishments, with price elasticities similar to those found in the United States. In terms of productivity, CAC regulations imposed a much higher cost on large establishments. Although CAC regulations were effective at increasing the number of large polluters that invest in “end-of-pipe” treatments, we provide evidence that price-based policies reduced the use of inputs with negative externalities across all firms.
“Imported Inputs and Productivity Spillovers from Foreign Direct Investment” Please Email for Draft

This paper considers how input market liberalization affects host country productivity spillovers from multinational corporation (MNC) investments. The standard “Backward Linkage” measure used to estimate technology and learning spillovers to local upstream suppliers—pioneered by Javorcik (2004) and replicated across several influential papers—implicitly assumes domestic and foreign firms share the same input structure. I show that this assumption constitutes an omitted variable bias of imported inputs in TFP spillover estimation. Using a novel Colombian firm panel that isolates imported from domestic inputs, mean backward linkage productivity spillovers reduce in half when the share of locally sourced inputs is adjusted to reflect MNCs’ observably higher propensity to import inputs. However in some industries, productivity spillovers increase in response to the adjustment. I demonstrate that the sign and magnitude of this bias are proportional to the elasticity of substitution between imported and domestic inputs. The results highlight how input market liberalization can have important feedback effects on local productivity spillovers from MNCs.

States continue to attract employers with location-based tax credits. In an effort to reduce inframarginal (i.e. wasteful) tax expenditures, some states have attempted to target these incentives to firms most likely to relocate. I exploit two natural policy experiments in California to study the efficacy of these incentives under both targeted and untargeted assignment mechanisms. Prior to 2013, California awarded tax credits in part via a randomized lottery, but the state has since switched to a targeted formula that ranks firms based on their likelihood of exiting the state absent the subsidy. Because the formula uses a score cutoff to assign tax credits, I can compare results from the lottery to those from a regression discontinuity design around this acceptance threshold, implicitly testing whether states can identify marginal-mover firms a priori. Combining state administrative data on the universe of tax credit applicants with Census Bureau microdata, I can estimate effects on employer relocation, local employment, firm revenue and implied tax revenue.

Note:Project approved for analysis with U.S. Census Bureau confidential microdata (April, 2016), and by State of California Governor’s Office of Business and Economic Development (May, 2016)

Ann Harrison (Co-chair)
William H. Wurster Professor of Multinational Management, Professor of Business Economics & Public Policy
The Wharton School
University of Pennsylvania
Phone: (215) 746-3132
Email: annh@wharton.upenn.edu

Fernando Ferreira
Associate Professor of Real Estate,
Business Economics & Public Policy
The Wharton School
University of Pennsylvania
Phone: (215) 573-7181
Email: fferreir@wharton.upenn.edu

Abstract: The extent to which workers adjust to labor market disruptions in light of increasing pressure from trade and automation commands widespread concern. However, surprisingly little is known about efforts that deliberately target the adjustment process. This project studies 20 years of worker-level earnings and re-employment responses to Trade Adjustment Assistance (TAA)—the United States’ largest and longest standing public incentive program for retraining. I estimate causal effects from the quasi-random assignment of TAA cases to investigators of varying approval leniencies. Using employer-employee matched Census data on 300,000 displaced workers, I find large initial returns to TAA. Ten years out, TAA-trained workers have $50,000 higher cumulative earnings, driven by both higher incomes and greater labor force participation. Yet annual returns fully depreciate after ten years. TAA appears to have no effect on formal education, and decaying returns are restricted to states with low training durations. Combined with evidence that effects are driven by training rather than transfer components of TAA, this suggests that the program augments transient rather than permanent human capital. Returns are further concentrated in the most disrupted regions, where workers are more likely to switch industries and move to labor markets with better opportunities in response to training—consistent with adjustment frictions.

Abstract: States continue to attract employers with location-based tax credits. In an effort to reduce inframarginal (i.e. wasteful) tax expenditures, some states have attempted to target these incentives to firms most likely to relocate. I exploit two natural policy experiments in California to study the efficacy of these incentives under both targeted and untargeted assignment mechanisms. Prior to 2013, California awarded tax credits in part via a randomized lottery, but the state has since switched to a targeted formula that ranks firms based on their likelihood of exiting the state absent the subsidy. Because the formula uses a score cutoff to assign tax credits, I can compare results from the lottery to those from a regression discontinuity design around this acceptance threshold, implicitly testing whether states can identify marginal-mover firms a priori. Combining state administrative data on the universe of tax credit applicants with Census Bureau microdata, I can estimate effects on employer relocation, local employment, firm revenue and implied tax revenue.

Abstract: This paper considers how input market liberalization affects host country productivity spillovers from multinational corporation (MNC) investments. The standard “Backward Linkage” measure used to estimate technology and learning spillovers to local upstream suppliers—pioneered by Javorcik (2004) and replicated across several influential papers—implicitly assumes domestic and foreign firms share the same input structure. I show that this assumption constitutes an omitted variable bias of imported inputs in TFP spillover estimation. Using a novel Colombian firm panel that isolates imported from domestic inputs, mean backward linkage productivity spillovers reduce in half when the share of locally sourced inputs is adjusted to reflect MNCs’ observably higher propensity to import inputs. However in some industries, productivity spillovers increase in response to the adjustment. I demonstrate that the sign and magnitude of this bias are proportional to the elasticity of substitution between imported and domestic inputs. The results highlight how input market liberalization can have important feedback effects on local productivity spillovers from MNCs.

Abstract: India has a multitude of environmental regulations but a history of poor enforcement. Between 1996 and 2004, India's Supreme Court required 17 cities to enact Action Plans to reduce air pollution through a variety of command-and-control (CAC) environmental regulations. We compare the impact of these regulations with the impact of changes in coal prices on establishment-level pollution abatement, coal consumption, and productivity growth. While both CAC regulations and higher coal prices resulted in improved air quality, they operated through different channels. CAC regulations primarily increased the share of large establishments investing in pollution control equipment, and reduced the entry of new establishments. In contrast, higher coal prices reduced the intensive margin of coal use within all establishments, with price elasticities similar to those found in the United States. In terms of productivity, CAC regulations imposed a much higher cost on large establishments. Although CAC regulations were effective at increasing the number of large polluters that invest in "end-of-pipe'' treatments, we provide evidence that price-based policies reduced the use of inputs with negative externalities across all firms.